An A–Z of Red Book for APC

When it comes to valuation, APC candidates need to familiarise themselves with a plethora of requirements – so a breakdown of the key standards, terms and issues will be helpful


  • Jen Lemen FRICS

02 September 2022

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RICS Valuation – Global Standards (Red Book Global Standards) help valuers provide the highest-quality advice to clients, with globally assured consistency. 

The current edition of Red Book Global Standards took effect on 31 January 2022, and APC candidates with Valuation and/or the Valuation-related competences need to understand it. You may be taking this to level 3 if you are an experienced valuer, or perhaps as a core technical competency to level 2 if you are a candidate on an alternative pathway where this is an option.

Assumption: valuation technical and performance standard (VPS) 4 in Red Book Global Standards discusses the use of assumptions and special assumptions. An assumption is defined as something that is reasonable for the valuer to accept without the need for specific investigation or verification – for example, an assumption about tenure, property condition or services. In contrast, a special assumption is where the valuer bases their work on factors that do not apply at the valuation date, or that would not be considered by a typical market participant at that time. For example, they may make a valuation based on a plot having planning consent when none has been granted, or they could value a development site based on the works being completed. 

Basis of value: VPS 4 also defines the various bases of value that a valuer can adopt, depending on the purpose of the instruction. The basis or bases must be confirmed in the valuer's terms of engagement and their valuation report. The VPS 4 bases of value are: Market value (VPS 4.4), Market rent (VPS 4.5), Investment value (VPS 4.6) and Fair value (VPS 4.7).

Compliance: alongside Red Book Global Standards, valuers must also comply with the International Valuation Standards (IVS) 2022 and other jurisdictional or valuation guidance. The IVS are the basis for the current edition of Red Book Global Standards, and are reproduced as Part 6 of that document.

'RICS Valuation – Global Standards (Red Book Global Standards) help valuers provide the highest-quality advice to clients, with globally assured consistency'

Disclosures: Professional Standard (PS) 2 Ethics, competency, objectivity and disclosures of Red Book Global Standards requires that a valuer make specific additional disclosures in certain circumstances, to clarify the circumstances in which a third party may rely on a valuation. Likewise, they must make such disclosures where the public has an interest in valuations as, for example, those conducted for companies' published financial statements, for the stock exchange, for mergers and acquisitions or for investment schemes. These disclosures will concern the relationship between the client and previous involvement, rotation policy, time as signatory and proportion of fees. Rotation policy relates to where the RICS member has provided a series of valuations over time; RICS recommends rotating valuers at least every seven years. Time as signatory means how long the RICS member and firm undertaking the valuation have been signatory to valuations for the same purpose and client. Proportion of fees relate to the proportion of total fees paid by the client during the precedent year; under 5% is considered minimal, 5-25% is significant and 25% or more is substantial. 

Ethics: Every valuer must comply with the current RICS Rules of Conduct, acting professionally and ethically in all valuation work. This includes following the requirements of the current edition of Conflicts of interest and PS 2 in the Red Book. 

Financial statements: valuation practice guidance – application (VPGA) 1 relates to work that will be included in financial statements. Valuers need to understand the reporting framework being adopted, such as the International Financial Reporting Standards (IFRS), as this will dictate the basis of value chosen; in the case of IFRS, this would be Fair value. In RICS Valuation – Global Standards: UK national supplement 2018 – discussed in more detail below – UK VPGA 1 further considers the basis of value to be adopted where the national UK Generally Accepted Accounting Practice applies. 

Goodwill: VPGA 3 relates to valuations of business and business interests, while VPGA 4 concerns the valuation of individual trade-related properties. Both of these require an understanding of the profits method of valuation and the term 'goodwill'. The latter is defined as any future economic benefit arising from a business or interest in a business, or from the use of a group of assets that is not separable. In lay terms, valuation is the intangible asset relating to business (e.g. brand name, customer base or customer relations). Section 2.4 of VPGA 6 Valuation of intangible assets is also relevant in this context. 

Hierarchy of evidence: all valuers should be familiar with the current edition of Comparable evidence in real estate valuation. This includes the concept of the hierarchy of evidence, and concerns which types of comparable take precedence over, or carry more weight than, others. There are three categories of evidence:

  • A: direct comparables

  • B: general market data

  • C: other sources.

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Inspections and investigations: VPS 2 confirms that inspections and investigations must be performed so far as is necessary to ensure the valuation is professionally adequate for the purpose. This includes taking reasonable measures to verify the information on which the valuer relies, and agreeing any reasonable assumptions with the client. Proper records must be kept of these inspections and investigations to maintain a clear audit trail for future reference.

Jurisdiction: valuers in certain jurisdictions may also need to comply with relevant national guidance, such as the RICS Valuation – Global Standards: UK national supplement 2018, or supplements for Dubai, India or New Zealand. These do not replace the Red Book Global Standards, but sit alongside to provide specific guidance for that market. 

'Valuers in certain jurisdictions may also need to comply with relevant national guidance'

Knowledgeably: VPS 4 defines Market value as 'the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's-length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion' (emphasis added). In this context, knowledgably means that each party has full knowledge of the transaction context and is acting with professional representation. 

Land: land valuations can be conducted using a combination of methods. For example, a plot of land with development potential could be valued using two approaches: the residual method and the comparable method. The former considers the value of the completed scheme, known as gross development value, before deducting all input costs including the developer’s profit to calculate the output of a Market value. This can then be cross-checked using the latter method, which considers sales of comparable pieces of land. Valuers should also refer to the Valuation of Land for Affordable Housing, 2nd edition guidance note.

Material uncertainty: VPGA 10 relates to matters that may give rise to material uncertainty in valuations. The three most common circumstances are: where an asset has particular characteristics that make it challenging to value; the information available to the valuer is limited or restricted; or the market has been disrupted by significant or unpredictable events such as the COVID-19 pandemic. Valuers must report on valuation uncertainty in qualitative terms, and declare how confident they are of their opinion.

Non-compliance: valuers do not have to comply with VPSs 1 through 5 of the Red Book Global Standards when the valuation is being made for one of five reasons. The excepted purposes are: provision of agency or brokerage advice; acting as an expert witness; performing statutory functions; a client's internal purposes; and during negotiations or litigation. However, all valuations must still comply with the mandatory requirements of PS 1 and PS 2. 

Objectivity: the valuer must confirm their objectivity and independence for every valuation instruction. This entails checking for conflicts of interest before accepting valuation work, with a clear record kept of this check. It likewise requires an understanding of how to manage conflicts of interest, and of how the client can give informed consent to work proceeding, although the instruction will need to be declined in high-risk scenarios. 

Portfolios: VPGA 9 relates to the valuation of portfolios, collections and groups of properties. This includes the principle of the lotting assumption – for example, where physically adjoining properties have been acquired separately by the same owner, or where multiple properties occupied by the same entity creates a functional dependency between them. The key issue here is to consider whether placing a whole portfolio, or a substantial part, on the market at the same time could lead to a reduction in values. Similarly, the opportunity to purchase a portfolio of properties could, in some circumstances, result in a premium in price. Valuers must make appropriate assumptions regarding lotting and ensure that their advice reflects how the market would view the portfolio.

Qualification: members and firms must ensure that valuations are provided by suitably qualified, experienced, competent and knowledgeable valuers, as per the requirements of PS 2. This is a decision for the individual valuer; if they do not feel suitably qualified for the specific instruction, they could seek external expertise for particular aspects of the valuation, or decline the work altogether. 

Reporting requirements: VPS 3 defines the 16 minimum reporting requirements for valuation reports, including: the purpose of valuation; the extent of investigation; assumptions and special assumptions; the valuation approach and reasoning behind it; and the date of the valuation.

Secured lending: VPGA 2 relates to valuations for secured lending, including mortgage valuations. For this type of valuation, previous or current involvement requires additional disclosures, while further commentary is also required on matters such as planning consents, sustainability, environmental issues and market demand. Previous involvement is where the client or firm have been instructed by the client in the preceding 12 months. Relevant sections of the RICS Valuation – Global Standards 2017: UK national supplement include VPGA 10 Valuation for commercial secured lending purposes and VPGA 11 Valuation for residential mortgage purposes. 

Terms of engagement: VPS 1 defines the minimum requirements that must be set out in terms of engagement. These are required for each instruction and must be agreed with, and signed by, the client before any work takes place. VPS 1 lists 18 items that must be included, such as the identification and status of the valuer, the identification of the client, the purpose of the valuation, the bases of value, and the valuation date.

UK national supplement: this is the jurisdictional valuation guidance for the UK, the current edition of which took effect on 14 January 2019. It must be read alongside the Red Book Global Standards and provides specific guidance on valuations undertaken in the UK, including those conducted for financial reports, regulatory purposes, local authority accounting, and secured lending.

'Valuers must adopt the right approach for the specific asset, purpose and other requirements of the instruction'

Valuation approaches: VPS 5 defines three valuation approaches: market, income and cost. Valuers must adopt the right approach for the specific asset, purpose and other requirements of the instruction. They must also justify in their valuation report which method or methods they adopted, as VPS 3 requires.

Written valuations: all valuers must comply with the Red Book Global Standards when providing a written valuation to a client. Written advice also includes the outputs of automated valuation models and valuation modelling. Where oral valuation advice is provided, this should still adhere to the principles of the Red Book Global Standards so far as possible.

TaX: RICS Valuation – Global Standards: UK National Supplement 2018 deals with taxation valuations in UK VPGA 15. This includes capital gains tax, inheritance tax, stamp duty land tax, and annual tax on enveloped dwellings. Generally, these valuations will have a basis of value that differs from those set out in VPS 4 because legislation and case law will define Market value, with nuanced differences between each type of tax. For example, section 160 of the Inheritance Tax Act 1984 and section 272 of the Taxation of Chargeable Gains Act 1992 apply when valuing in relation to the respective types of tax.

Yields: while the Red Book Global Standards do not tell valuers how to value, VPS 5 now includes guidance on the three valuation approaches. One of these is the income approach, which incorporates the investment method of valuation. This requires the valuer to assess market rent and an appropriate market-based yield, which they combine to derive their opinion of Market value. There are many different types of yield, including all-risks yields, net initial yields, running yields, and gross yields.

Zoning: zoning, or planning, can affect the valuation advice reported by the valuer. Therefore, valuers need to carry out sufficient due diligence to ascertain whether the property being valued has the necessary statutory consents for its current use, or whether there are any applications, proposals or policies that may affect value. This may require the use of assumptions by the valuer, and these must be recorded in writing in the terms of engagement and the valuation report. 

'VPS 5 now includes guidance on the three valuation approaches'

Jen Lemen FRICS is co-founder of Property Elite

Contact Jen: Email

Related competencies include: Valuation

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